5 Tips to reduce your supply chain risk

Web and Social Media Manager

Events such as the earthquake in Japan, the horsemeat found in beef burgers, the collapse of the cloth factory in Bangladesh and the supply chain disruptions caused by extreme bad weather conditions this year have made trendy a long forgotten term: Supply Chain Mapping.

A Supply Chain Map is defined as a living graphical representation of your supplier network. It is meant to capture all the companies involved in your end-to-end supply chain, their relationships and potential risks. As daunting as it sounds to have another never ending project, or living representation in politically correct terms, with an unknown number of risk variables (where will the next news headline come from? ) there are some other uncontrollable sources of supply chain mapping related worries.

If we believe in the data of the many European spend studies, purchases from unapproved suppliers are anywhere between 10% and 40%. That is, no matter how up to date you keep your supply chain map, there is still a large component of risk coming from all those suppliers you haven’t mapped because theoretically you weren’t buying from them. Or to put it simple: any supply chain mapping exercise is worthless the very first moment one purchase goes to an unapproved supplier. However, most buyers will transact with unapproved suppliers not as a rebellious act but because they can’t find a suitable product, price or supplier in the system.

The keyword here is ‘can’t find’ as oppose of ‘doesn’t exist’. If fact most ERPs and P2P systems face serious challenges when it comes to product, pricing and contract visibility with many organisations making tactical procurement decisions based on the buyers experience or on gut feeling, such is the difficulty to find the up to date contract with the right prices and product information in an efficient way that justifies the time spent.

So how can we enable buyers to find the right information at the right time to reduce off-contract spend and make supply chain mapping a valuable asset for risk management? Here are a few tips:

  • Get a cataloguing system to enhance your current P2P system that allows visual product and price searches in the fashion of Amazon. If your products and prices can be found quickly and easily in a similar way to how your buyers do their online shopping at home, they will stop shopping around for new suppliers.
  • Make sure the cataloguing system includes eRFQ functionality to allow buyers to request quotes if the product is not available in the system. This reduces the likelihood of using unapproved suppliers and provides you with audit trails.
  • Educate your buyers: rather than training them to find information in a difficult system, make them aware of the extra work non-compliance orders generate to other teams, specially finance and again, get an intuitive cataloguing system to support them.
  • Enforce your procurement policy: if it is not in the system, your buyers are not allowed to buy it.
  • Get the higher management involved: there are very few success stories for software implementations or policy enforcement in those companies where internal sponsorship is not in place.
Category: Purchase-to-Pay